Merit pay can be an effective tool for improving morale, retaining your top performers, and driving loyalty. Yet, rewarding employees without a plan can have the opposite effect: it may demotivate employees and send your best talent searching for other opportunities. Here, we share some tips for mastering merit planning with success.

1 Establish Your Goals

To determine eligibility for merit raises, you must first determine your company goals. HR experts recommend developing the company’s strategic plan, then cascading these goals down to the departmental objectives, until finally metrics are created for individual contributors. This will give you a foundation for making data-driven pay decisions.

2 Commit to Transparency

Building a communication plan around your pay policy is one of the most important factors needed for success. Proactive communication is the best way to help employees a develop an understanding of how their pay was calculated. Total reward statements can also be used to break down elements of compensation, providing a clear picture of how employees are rewarded.

3 Keep Merit Pay Separate

Avoid lumping merit pay in with other compensation increases. If pay is increasing to align with market values, don’t position it as pay-for-performance. When merit increases begin to be perceived as routine, they begin to lose their value.

4 Define & Measure Performance Parameters

Employees need to know exactly what’s expected of them in terms of performance. Define expectations and set up credible, accurate parameters to measure outcomes. For example, if teamwork is an important performance criterion, gather 360-degree feedback from employees and use these insights to make conclusions about performance.

5 Train Managers & Supervisors

Finally, make sure managers and supervisors are tracking employee performance continuously. Train them on how to have meaningful discussions about pay, and empower them to make accurate and effective pay decisions using the right technology. Simple-to-use yet powerful tools such as compensation planning software can streamline the process by supporting collaboration among HR and line managers.

HRSoft is the trusted global leader in compensation management software whose COMPview solution is proven to control and simplify the full process and allocation of merit, bonus and equity awards to drive manager and employee engagement.